Starting in 2024, families who are saving for education in 529 plans will be allowed to roll over unused funds from those accounts into Roth individual retirement accounts (IRA) without incurring tax penalties.

Virginia529 account owners can request a rollover to an existing Roth IRA owned by their student by completing the Roth IRA Rollover Request form online. This form will be available on January 2, 2024.

Congress signed this new provision into law at the end of 2022, and financial professionals agree it will provide a new option for individuals who find themselves with leftover or unused money in their 529 account but who don’t want to incur the tax penalties that come with taking a nonqualified withdrawal.

Some account owners find themselves with leftover money in their 529 account if their child doesn’t attend college or another qualifying institution. Or account owners could be left with surplus funds in their 529 account if their student receives a scholarship.   Related: What to Do With a 529 Plan If Your Kid Doesn’t Go to College

There are a few limitations to the new rollover measure, including:

• The 529 account must have been open for more than 15 years
• The eligible rollover amount must have been in the 529 account for at least 5 years
• The funds must be rolled over to a Roth IRA owned by the 529 account beneficiary (student)
• There’s a $35,000 lifetime cap on Roth IRA rollovers for each 529 account beneficiary

Instead of waiting to rollover funds to a Roth IRA, account owners with leftover account funds could always transfer the 529 account to another qualifying family member — including a spouse; a son, daughter, brother, sister, father or mother-in-law; sibling or step-sibling; first cousin or their spouse; a niece, nephew or their spouse; or aunt and uncle, among others.

Account owners can also keep funds in a 529 account for a student’s graduate school education, the education of a future grandchild, or use the funds to pay up to $10,000 in payments for qualified student loans for the 529 account beneficiary (student) or their sibling.